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James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday, but well off its lows. The move represents continuation selling pressure following yesterday’s technically bearish closing price reversal chart pattern. The fundamentals haven’t changed, which suggests the price action is probably related to profit-taking.

At 13:38 GMT, July WTI crude oil is at $69.08, down $0.15 or -0.22% and August Brent crude oil is at $71.24, down $0.25 or -0.35%.

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We’re not too surprised by today’s pullback. After all, WTI prices reached $70 a barrel last week, which some analysts believe will be a fair price later in the year, once the economy is running on nearly all cylinders, so let’s just say the market may have gotten a little ahead of itself and a correction was necessary.

Several other factors may also be encouraging bullish traders to lighten up on the long side. They include the renewed talks between the United States and Iran, a drop in China’s crude imports and a stronger U.S. Dollar.

Negotiations between the U.S. and Iran opens up the possibility of the lifting of sanctions on the rogue nation and the release of about 500,000 to 1 million barrels of oil per day.

Data showing China’s crude imports were down 14.6% in May on a year basis also weighed on prices. Heavy Chinese refinery maintenance in May also contributed to the decline.

“China was taking advantage of low oil prices a year ago, so the base is uncharacteristically high,” oil brokerage PVM noted.

A stronger U.S. Dollar is a possible threat to foreign demand because oil is a dollar-denominated commodity. The dollar could strengthen over the near-term if next week the Federal Reserve announces that it will be considering tapering of bond-buying stimulus program.

Short-Term Outlook

Later today at 20:30 GMT, the American Petroleum Institute (API) will release its latest crude oil and fuel inventories report. Traders are looking for a drawdown. Of major importance, in my opinion, will be the gasoline inventories number. Since the U.S. summer driving season started on May 31, traders are expecting to see a drawdown in gasoline inventories because of stronger demand.

For a look at all of today’s economic events, check out our economic calendar.
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